United States General Accounting Office
Washington, DC 20548
March 20, 2001
The Honorable Donald H. Rumsfeld
Secretary of Defense
Subject: Defense Planning: Opportunities to Improve Strategic Reviews
Dear Mr. Secretary:
For the past several years, the General Accounting Office (GAO) has reviewed the
Department of Defense’s (DOD) efforts to strategically plan for the nation’s defense
needs and prepare related budgets. In particular, we evaluated DOD’s methodology
for conducting the 1993 Bottom-Up Review and the 1997 Quadrennial Defense
Review (QDR), and its preparation of several Future Years Defense Programs
(FYDP). As the Department begins a new effort to review its strategic priorities,
consider alternatives to current forces, weapons programs, and support operations,
and reach investment decisions, we would like to share some observations based on
our past work for your consideration. In particular, these areas relate to the
importance of 1) using realistic assumptions and integrated analyses to reach force
structure and modernization decisions, 2) preparing FYDPs that clearly link strategy
and resources, and 3) ensuring the Department’s review efforts carefully scrutinize
opportunities to reduce support infrastructure and improve business processes.
USE OF REALISTIC ASSUMPTIONS AND
INTEGRATED ANALYSES NEEDED TO FULLY
ASSESS FORCE STRUCTURE AND
MODERNIZATION ALTERNATIVES
Our evaluation of the 1993 Bottom-Up Review and the 1997 QDR identified
limitations in DOD’s analytical approach to assessing defense needs and
opportunities to strengthen future review efforts.1
1
Bottom-Up Review: Analysis of Key DOD Assumptions (GAO/NSIAD-95-56, Jan. 31, 1995) and
Quadrennial Defense Review: Opportunities to Improve the Next Review (GAO/NSIAD-97-144,
June 25, 1998).
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1993 Bottom-Up Review
In the Bottom-Up Review, DOD judged that it was prudent to maintain the capability
to fight and win two nearly simultaneous major regional conflicts and determined the
forces, capability improvements, and funding necessary to do so. However, DOD
reached its conclusions without fully analyzing the validity of key assumptions it
made regarding the availability of forces, supporting capabilities, and enhancements.
Furthermore, some of DOD’s assumptions were questionable.
For example, DOD assumed that forces would be redeployed from other operations,
such as peacekeeping, to regional conflicts or between regional conflicts. However,
our work showed that critical combat and support forces needed in the early stages
of a conflict may not be able to quickly redeploy from peace operations because
(1) certain Army support forces would need to remain to facilitate the redeployment
of other forces and (2) logistics and maintenance support for specialized Air Force
aircraft would have to wait for available airlift. DOD also assumed sufficient
strategic lift assets, prepositioned equipment, and support forces would be available.
However, at the time of our review in 1994 and 1995, our work showed that the Army
lacked sufficient numbers of certain support units to meet requirements for a single
conflict and that DOD had encountered problems or funding uncertainties in
acquiring additional airlift and sealift and prepositioned equipment.
Based on our work, we concluded that until DOD fully analyzed its assumptions, it
would not have a firm basis for determining the forces, supporting capabilities, and
funding needed for the strategy. We recommended that DOD thoroughly examine
key Bottom-Up Review assumptions. In a subsequent war game called Nimble
Dancer, DOD further analyzed its Bottom-Up Review assumptions and conclusions.
While the war game provided a useful forum for identifying critical issues, we found
limitations in its analysis.2 For example, DOD examined the impact of extracting
forces from peace operations and redeploying them to a major regional conflict, but
did not test the sensitivity of its assumption that strategic lift would be available.
2
Bottom-Up Review: Analysis of DOD War Game to Test Key Assumptions (GAO/NSIAD-96-170,
June 21, 1996).
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1997 QDR
The 1997 QDR, while broader in scope and more rigorous in some aspects than the
1993 Bottom-Up Review, also had some limitations that precluded a full analysis of
defense needs. One limitation was that it did not examine some alternatives that
would have provided greater assurance that the review identified the force structure
and the modernization program that were best suited to implement the defense
strategy. For example, the QDR’s force assessments only modeled alternatives to cut
the services’ forces proportionately by 10, 20, and 30 percent. It did not examine
alternatives that would reduce or increase only ground forces or air power or naval
forces. Furthermore, none of the assessments fully examined the potential effects of
new technologies and war-fighting concepts on DOD’s planned force structure.
The 1997 QDR also did not include a thorough mission-oriented review of the mix of
capabilities the United States would need to counter future threats. For example,
DOD analyzed modernization options that would reduce or increase planned funding
for systems by up to 10 percent. It did not examine trade-offs or fundamentally
reassess modernization needs in light of emerging threats and technological
advances.
Furthermore, the modernization and force structure analyses were not fully
integrated. As a result, the QDR did not sufficiently examine linkages and trade-offs
between force structure and modernization decisions.
In addition to our Bottom-Up Review and QDR analyses, we previously reported on
the benefits of looking at modernization and force structure from an integrated
perspective.
For example, in two 1996 reports on combat air power,3 we noted that DOD was not
developing sufficient information from a joint perspective to enable the Secretary of
Defense to prioritize programs, objectively weigh the merits of new investments, and
decide whether current programs should continue to receive funding. As a result, we
concluded that DOD was proceeding with some major investments without clear
evidence the programs were justified. Our assessments indicated that some
modernization programs would add only marginally to already formidable
capabilities. Moreover, the changed security environment had altered the need for
some programs and, in some cases, less costly alternatives existed. Also, in a June
1997 report on overseas presence,4 we concluded that DOD’s process for determining
presence requirements did not analyze whether more cost-effective alternatives—
different levels and mixes of forces and activities—might exist.
Currently, DOD faces the same challenge as it did during the Bottom-Up Review and
1997 QDR—developing an affordable defense program that provides the necessary
3
U.S. Combat Air Power: Reassessing Plans to Modernize Interdiction Capabilities Could Save Billions
(GAO/NSIAD-96-72, May 13, 1996) and Combat Air Power: Joint Mission Assessments Needed Before
Making Program and Budget Decisions (GAO/NSIAD-96-177, Sept. 20, 1996).
4
Overseas Presence: More Data and Analysis Needed to Determine Whether Cost-Effective
Alternatives Exist (GAO/NSIAD-97-133, June 3, 1997).
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current and future military capabilities to support the U.S. strategy. While the DOD
may approach the current effort differently, the need for strong analytic rigor in its
review methodology remains. In this regard, our observations on the past efforts
remain relevant today and can provide some useful insights as the Department plans
and conducts its ongoing review (see enclosure II).
NEED FOR MORE REALISTIC BUDGETING
Since the mid-1980s, we have reported that DOD employs overly optimistic planning
assumptions in its budget formulation. As a result, DOD has too many programs for
available dollars, which often leads to program instability, costly program stretchouts, and program terminations. In particular, our analysis of DOD’s budget
formulation efforts since the mid-1980s and specific FYDPs for fiscal years 1995
through 2001 shows that DOD’s FYDPs repeatedly include unrealistic estimates of
savings from plans to reduce infrastructure, competitive sourcing, reengineering, and
other defense reform initiatives. Also, it continues to underestimate operating costs
for various activities such as real property maintenance, the Defense Health Program,
and operations such as U.S. involvement in Kosovo and Bosnia. Furthermore, DOD
continues to use projections for increased procurement funding that do not recognize
significant historical experience with the proportional rise and fall of procurement
funding to movements in the total budget. Because of these deficiencies, DOD’s
ability to implement its program as planned is at risk, year after year.
While DOD has made some adjustments to achieve a better balance in its financial
plans to meet current requirements and address long-term modernization needs, a
“mismatch” between strategy and resources continues to exist. The most recent
FYDP covering fiscal years 2001 through 2005 continues this trend. As the
Department prepares future FYDPs, we suggest you consider our observations on its
past efforts (see enclosure III).
IMPORTANCE OF FULLY EXAMINING
SUPPORT INFRASTRUCTURE
AND BUSINESS PROCESSES DURING
CURRENT REVIEW EFFORTS
The 1993 Bottom-Up Review and 1997 QDR emphasized the need to reduce DOD’s
infrastructure to offset the cost of future modern weapons systems and to improve
the effectiveness and efficiency of business processes. In November 1997, DOD
announced the Defense Reform Initiative—a major effort to modernize the
Department’s business processes and reduce its infrastructure costs. In 1999 and
2000, we reported that DOD had made progress in implementing the reform
5
initiative. For example, DOD established a management oversight structure that
helped get the initiative off to a good start and had completed or was likely to
complete certain initiatives on schedule such as reorganizing and reducing staff in
certain headquarters offices. To provide a roadmap for reform and help sustain
5
Defense Management: Actions Needed to Sustain Reform Initiatives and Achieve Greater Results
(GAO/NSIAD-00-72, Jul. 25, 2000) and Defense Reform Initiative: Organization, Status and Challenges
(GAO/NSIAD-99-87, Apr. 21, 1999).
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momentum, we recommended that DOD develop a comprehensive, integrated
strategy and action plan for reforming its major business processes and support
activities, and an investment plan for implementing reforms. While the Department
agreed with our recommendation, it did not specify what actions it would take and
has not yet developed a long term integrated plan for implementing reform initiatives.
In January 2001, we reported on the major management challenges facing DOD and
risks in several interrelated areas of the defense program.6 Focusing on strategic
planning, support infrastructure, and key business processes such as financial
management and information systems, weapons system acquisition, and logistics
support systems, we summarized the Department’s progress in initiating reforms and
areas requiring further improvements. For example, despite reform efforts,
infrastructure costs continue to consume a larger than necessary portion of the
defense budget and serious weaknesses continue to exist in logistics activities.
In its past strategic reviews, the Department has focused substantial attention on
analyzing force structure and modernization requirements. However, if problems on
the business side of DOD’s mission are not addressed, inefficiencies will continue to
make the cost of carrying out unassigned missions unnecessarily high and increase
the risk associated with these missions. In this regard, each dollar that is spent
inefficiently on support activities is a dollar that is unavailable to meet other internal
priorities such as modernization and readiness. The current review offers an
indispensable opportunity for the Department to assign high priority to addressing
longstanding problems in its infrastructure and key business processes as we have
recommended in our reports.
I recognize the issues raised in this letter are not new and that you have already
begun a strategic review as a precursor to determining specific defense needs and the
appropriate level of resources for the defense program. A recurring theme of our
work is that results-oriented management and decisionmaking based on sound
strategic planning is essential to achieving desired outcomes. In this regard, major
statutes such as the Government Performance and Results Act, the Clinger-Cohen
Act, and the Chief Financial Officers Act provide a powerful framework for DOD to
identify missions and strategic priorities, establish performance goals and data to
measure the level of achievement of these goals, and make investment decisions
based on strategic priorities and performance outcomes. I encourage you to
seriously consider using this legislative framework as the foundation for the
Department’s review efforts.
- - - -
6
Major Management Challenges and Program Risks: Department of Defense (GAO-01-244, Jan. 2001).
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I hope that the Department will consider our observations in its review efforts. If you
think it beneficial, I would be glad to make members of my staff available to brief the
Department in more detail on any of the subjects discussed in this letter. If you have
any questions, please contact me at (202) 512-4300.
Sincerely yours,
Henry L. Hinton, Jr.
Managing Director,
Defense Capabilities and
Management
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Enclosure I
Enclosure I
Relevant GAO Products
Future Years Defense Program: Risks in Operation and Maintenance Procurement
Programs (GAO-01-33, Oct. 5, 2000).
Future Years Defense Program: Comparison of Planned Funding Levels for the 2000 and
2001 Programs (GAO/NSIAD-00-179, June 14, 2000).
Future Years Defense Program: Funding Increase and Planned Savings in Fiscal Year
2000 Program Are at Risk (GAO/NSIAD-00-11, Nov. 22, 1999).
DOD Budget: Substantial Risks in Weapons Modernization Plans (GAO/T-NSIAD-99-20,
Oct. 8, 1998).
Future Years Defense Program: Substantial Risks Remain in DOD’s 1999-2003 Plan
(GAO/NSIAD-98-204, July 31, 1998).
Defense Budget: Projected Inflation Savings (GAO/NSIAD-98-177R, May 11, 1998).
Future Years Defense Program: DOD’s 1998 Plan Has Substantial Risk in Execution
(GAO/NSIAD-98-26, Oct. 23, 1997).
Future Years Defense Program: Lower Inflation Outlook Was Most Significant Change
From 1996 to 1997 Program (GAO/NSIAD-97-36, Dec. 12, 1996).
Future Years Defense Program: 1996 Program Is Considerably Different From the 1995
Program (GAO/NSIAD-95-213, Sept. 15, 1995).
Future Years Defense Program: Optimistic Estimates Lead to Billions in
Overprogramming (GAO/T-NSIAD-95-83, Jan. 19, 1995).
Future Years Defense Program: Optimistic Estimates Lead to Billions in
Overprogramming (GAO/NSIAD-94-210, July 29, 1994).
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Enclosure II
Enclosure II
GAO’s Key Observations and Recommendations or Suggestions on the Department of
Defense’s 1993 Bottom-Up Review and 1997 Quadrennial Defense Review
Area of focus
Bottom-Up
Review analysis
QDR preparation
QDR structure
and
methodology
Our observations
The Department of Defense (DOD) did not
fully test or analyze key assumptions
regarding the availability of forces and
assets to redeploy from one theater to
another, deployability of reserve forces,
sufficiency of support capabilities such as
mobility and support forces, and planned
capability enhancements such as precision
munitions were not fully tested and some
were questionable.
DOD had not developed a formal process to
prepare for and coordinate activities
related to future Quadrennial Defense
Reviews (QDR). DOD did not finalize the
defense strategy until the force structure
and modernization panels had completed
much of their work.
DOD’s force structure assessments
modeled only major theater warfare and
did not examine alternatives other than
proportional reductions to the services’
combat capabilities.
DOD should assign overall
responsibility and coordination of
preparation efforts for future QDRs.
Such efforts should include to identify
analytic tools and data needed for
assessments, monitor efforts to
upgrade models, summarize lessons
learned, and consider changing the
QDR structure and timing to allow
sufficient time to conduct a strategy
review and good analytic base.
DOD could model existing force
structure prior to next QDR to
establish a baseline to use as a basis for
comparison and allow more emphasis
on modeling alternative structures.
In a QDR-war game, Dynamic Commitment,
DOD analyzed the effect of small scale
contingencies but did not identify or
analyze changes to force structure.
DOD could examine ways to improve
the war game. These improvements
can be used to examine force structure
alternatives.
DOD’s modernization assessment reviewed
proportional changes to existing plans but
did not examine alternative mixes of air,
ground, and maritime modernization.
DOD could vary the mix to provide
more insight into modernization
tradeoffs.
Modernization and force structure panels
completed their analyses separately and did
not model trade-offs between force
structure and modernization alternatives.
DOD did not examine the potential effects
of new or advanced technologies or enemy
use of asymmetric concepts of warfare
used by U.S. and enemy forces on
operational concepts or force structure
because of limitations in available models.
Source: Our analysis.
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Our recommendations or suggestions
DOD should thoroughly examine
assumptions related to the
redeployment of forces and assets from
lesser operations to major conflicts or
between major conflicts, availability of
mobility, support and reserve forces,
and planned enhancements to strategic
lift and firepower.
To ensure better integration, DOD
could form one panel to analyze force
structure and modernization issues or
maintain separate panels but provide
guidance to ensure that panels
collaborate and examine trade-offs.
DOD needs to determine how it can
improve its analysis of the impact of
technological advances and
asymmetric concepts of warfare.
GAO-01-514R Defense Planning
Enclosure III
Enclosure III
GAO’s Observations on DOD’s Budget Formulation Efforts and
Future Years Defense Programs for Fiscal Years 1995 through 2001
Area of focus
Planning assumptions
Shifting of funds
Our observations
Since the mid-1980s, we have reported
and testified that DOD employs overly
optimistic planning assumptions in its
budget formulation, which leads to far
too many programs for the available
dollars.
Results of DOD’s actions
DOD has too many programs for
the available dollars, which often
leads to program instability,
costly program stretch-outs, and
program terminations.
Optimistic planning assumptions used
in DOD’s Future Year Defense Programs
(FYDP) often fall into one or more of
the following categories: overestimation
of future savings to be generated from
management initiatives, competitive
sourcing, and reengineering;
underestimation of costs; and use of
overly optimistic inflation forecasts and
fuel costs and favorable foreign
currency exchange rates.
Optimistic planning makes
defense priorities unclear
because tough decisions and
trade-offs between needs and
wants are avoided. It also
increases the risk that DOD will
not be able to execute its
programs as planned. For
example, our reviews of DOD’s
FYDPs over the past few years
have shown that DOD has not
been able to reduce its
infrastructure and increase
procurement funding to the
extent desired. This problem
can be attributed somewhat to
optimistic projections of future
savings that did not materialize.
Further shifting of planned
procurement funding creates a
large demand for procurement
funding in later years. This
movement raises the risk that
budgeted funds will be
insufficient to cover needs. As a
result, existing equipment could
deteriorate and become obsolete,
which could compromise the
technological superiority of
future forces.
Based on our analysis of DOD’s FYDPs,
we have consistently reported that DOD
has had difficulty meeting its planned
growth in procurement funds and as a
result, increases in procurement funds
were shifted to the future. This pattern
was caused by the need to use
procurement funds for operation and
maintenance activities, which have
continued to represent a large
proportion of DOD’s budget.
Budgets do not reflect realistic
estimates for procurement
funding due to the long-standing
problem of cost growth. Costs of
several weapons systems could
exceed current project costs.
Source: Our analysis.
(350056)
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